How to mine Cryptocurrency

April 4, 2022
Knowledge Center » Blog » How to mine Cryptocurrency

What is Crypto Mining?

There are two main ways to earn cryptocurrency without actually buying the token itself. These processes are called proof of stake, and proof of work. Typically, when someone thinks of traditional crypto mining, they are thinking of proof of work. Transactions on the blockchain need to be validated before they successfully complete. In order to make this happen, there is a certain amount of processing power that is required depending on the “difficulty” of the current chain. In order to fill this need for processing power, people and organizations use their own power to solve incredibly difficult algorithms and equations on the chain, and in turn get rewarded for their processing power used.

The Equipment

Crypto mining is done on either a computer’s GPU or an “ASIC” miner. ASIC stands for application-specific integrated circuit. These are processing chips built with a specific purpose and typically allow for much higher processing power for a smaller energy cost. GPU farms also rose in popularity over the years as ethereum mining took off. Miners would gather vast amounts of computer GPUS and build an open design that allowed them all to run and cool in cooperation for high profits. This in turn skyrocketed the price of computer GPUS, making them harder to come by for both regular users and miners alike.

Mining Profitability

There are a few key factors that go into how profitable mining crypto will be for an individual. These are: (a) processing power (b) electricity usage (c) electricity cost. Finding a solution that allows for a large amount of hashing power while also being energy efficient is vitally important. A miner also needs to find somewhere the cost of electricity is low enough to keep profits high. This has organizations taking their crypto farms overseas sometimes where electricity costs may be lower, or average temperatures lower as well so they can get some help for their costly fans.

Pools

One of the final key things for a mining individual is a crypto pool. Rewards for crypto mining get paid out to the person who put the final and correct piece of work in. This means that unless you have a very large amount of hashing power, or are extremely lucky, you probably won’t get a reward very often as a “solo-miner”. This means that the majority of miners work in pools. Pools are a group of people who work together to mine for a reward, and then when its received, the reward gets split between every in the pool fairly based on their amount of processing power given. This allows for even the smallest of miners to turn a daily profit and is typically done with very little fees given to the pool.

Mining Downsides

Proof of work algorithms are extremely energy heavy and put a large drain on the electricity grid overall. Ethereum, the most popular coin that users currently GPU mine for, is switching to proof of stake within the coming months. This switch to a proof of stake algorithm will require much less energy for users to earn a reward. In ethereum 2.0, validators would now be rewarded for staking their Ethereum and gain more overtime as a reward. This can be thought of similarly to a traditional interest savings account, but with typically much higher yields.

Crypto Taxes

With all that being said, if you do decide to jump into this world of crypto and even pick yourself up some tokens or NFTs, you need to make sure that you have the proper tools on hand to help you manage your financial accounting needs. One of the best solutions for you will be Ledgible.

With Ledgible, you can report and keep track of your crypto transactions with the supported integrations as you dive into the crypto space with this new information. If you want to learn more about Ledgible and get started for free, click here.

Disclaimer: The author and Ledgible do not provide investment advice and nothing in this article is meant to be taken as such. This website is presented solely for informational and entertainment purposes and is not to be construed as a recommendation, solicitation, or an offer to buy or sell / long or short any securities, commodities, cryptocurrencies, or any related financial instruments.

About Trevor English

Trevor is a technology journalist & engineer who has made a career out of engineering and technical communication. His work has appeared on Curiosity, BBC, Interesting Engineering and other sites across the web. Originally the Chief editor for Interesting Engineering back in 2016, he now works with software & tech companies, aiding them in content marketing and technical communication. Currently living in Texas, he’s also a published children’s book author and producer for the YouTube channel Concerning Reality.

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